Sales and Use Tax Annotations

Annotation 515.0029

(a) IN GENERAL—SERVICE DISTINGUISHED FROM SALE

515.0029Music Lessons—Instrument Sales. A guitar studio offers a thirty week guitar course for a total price of $369 payable as follows: $69.00 at the time of enrollment and the balance of $300.00 payable at $10.00 each week over the thirty week course period. In addition to the course instruction, the contract provides that the studio will furnish "an acoustic guitar for home practice, complete with sheet music, picks, and strings necessary to course." Finally, the contract provides that the guitar remains the property of the studio if the student discontinues lessons at any time prior to completion of the course, and that, in such case, the student must return the guitar. However, students completing and paying for the entire course will own the guitar. No refunds are permitted on any portion of the contract price. In the contract, the guitar is shown as selling for $64.79 plus sales tax. This amount is equal to or more than the cost of the guitar to the studio.

Under this contract, the transfer of the guitar is clearly not incidental to the providing of the guitar lesson. Therefore, the transaction constitutes taxable sales under which possession of the guitars are transferred upon delivery to the students with the studio retaining title thereto as security for the payment of the price. Sales tax is measured by the separately stated sales price ($64.79) stated in the contract. In the event that the studio should repossess a guitar because a student has not paid the entire contract price, the studio would be entitled to a bad debt deduction only if the wholesale value of the repossessed guitar is less than the net contract balance at the date of repossession. The sheet music, picks, and strings furnished by the studio to its students are items which are incidental to the provisions of the guitar lessons. Consequently, the studio is the consumer of these items and is liable for tax measured by the purchase price of these items. 8/13/83.

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